Employment Q & A

This column appeared in substantially the same form in the Boston Software News, August, 2000.

Question:My employment agreement has a “non-compete” provision. What does this really mean? I have heard they are non-enforceable, is this true?

Answer: Before you can start a job with a company, the employer will probably ask you to sign a “non-compete” agreement. These agreements generally restrict certain activities you can undertake during and after your job. Typical restrictions may limit your right to: a) set up a business which competes with your employer; b) work for your employer’s clients; c) try to do business with or “solicit” your employer’s clients; or d) work for a competitor of your employer. You would be wise to pay attention to these provisions and assume that they are enforceable, especially non-solicitation clauses. Clauses which restrict your right to seek employment are enforceable, generally, only if they are reasonably circumscribed by geographic, temporal and marketplace limitations. Typically, courts will enforce such provisions if they legitimately protect the interests of the employer without depriving you of a chance to earn a living. If you think certain restrictions are excessive, speak up. In a tight labor market, you may have the power to negotiate terms more acceptable to you.

Question:Part of my compensation package contains stock options. After the market downturn are options still a good deal? Are they really compensation? Should I accept these options?

Answer: Many technology companies offer employees options in their stock. An option is different from the stock itself. An option represents your right, not obligation (that’s why it’s an “option”), to acquire company stock at a fixed price (usually the fair market value of the stock, sometimes called the “strike price”). The recent downturn of the market points out an important, and previously overlooked, aspect of options, namely that their value is uncertain. An option’s value can not be calculated when the option is granted; it can be determined only after you have bought your company’s stock (“exercised” your option) and then, most importantly, sold the stock. If the value of your company’s stock has risen since you acquired your option, you will make money. If the market price has dropped, there is no reason to exercise your option. To make money on an option one other key ingredient is required – a buyer of your stock. This is the reason an option in a closely held company, i.e. a company whose stock is not publicly traded on a securities exchange like NASDAQ, may never yield income to the owner – no one will buy your stock. Treat an option like a contingent bonus; do not mistake it for compensation.

Question:My employer asked me whether I am bringing any “trade secrets” from my prior job. What is a trade secret? How would I know if I had one? And if I know a trade secret, how does that affect my new job?

Answer: As more companies engage in r&d to get an edge on their competitors, employees often work on projects which the company may consider crucial to its competitive advantage. If a company wants to make this technology proprietary and prevent it from getting into the hands of its competitors, it may call the technology a “trade secret.” A trade secret consists of some intellectual property, (e.g. an algorithm, computer program or analytical method) which was developed by the company and is not known by its competitors (or “in the public domain”). A company must take appropriate steps to maintain the secrecy of the technology. If you had access to your employer’s trade secrets, your employer should have made you aware of that fact. Otherwise your employer is not carefully protecting its secrets. Unless you were explicitly advised that you were working on technology considered a trade secret, you can safely assume you were not. Typically this subject is covered in exit interviews. If you know a trade secret, it is your duty not to disclose the contents of the secret to third parties, including subsequent employers, and it is the duty of subsequent employers not to try to cajole such information out of you. Loose lips can sink more than ships, but only when they have been instructed to be sealed.

The questions and answers presented in this column vastly oversimplify what can be highly complex issues of law. The point of this column is not to provide definitive legal advice on specific topics, but rather to sensitize readers to general legal issues described from the 10,000 foot perspective. In no way is this column intended to substitute for advice one would receive from an experienced practitioner on a particular issue.